EUROPE

Economic Overview

Europe has arguably the greatest economy in the world, dominating the marketplace. Europe is comprised of more than 731 million people, residing in 48 different countries. Although the European region is one of the smallest in terms of area in the world, it has the highest nominal GDP. According to the International Monetary Fund, in 2013, Europe’s nominal GDP topped out at US$24.4 trillion, about a third of the world total.

Europe in general is a very wealthy region, but like other continents, the wealth of Europe’s states varies. While most states in Europe are very well-developed and have a higher GDP per capita than the world’s average, there are still large differences in wealth between the states.

Europe’s largest national economy is that of Germany, ranking fourth globally—according to World Bank statistics—in terms of nominal GDP at US$3.8 trillion in 2014. Many European countries follow suit, as the United Kingdom, France, Italy, Russia, and Spain are globally ranked 5th, 6th, 8th, 10th, and 14th respectively in terms of nominal GDP. Many European states also have a high GDP per capita, higher than the world’s average. According to 2014 World Bank statistics, there are six countries ranked in the top 10, and 14 in the top 20 of the world’s GDP per capita ranking, including (in order of rank): Luxembourg, Norway, Switzerland, Denmark, Sweden, Ireland, Iceland, Netherlands, Austria, Finland, Germany, Belgium, United Kingdom, and France. The difference in wealth across Europe can roughly be seen across the former Cold War divide—with the exception of Greece, Portugal, the Czech Republic, and Slovenia.

The European Union was formed in 1999, introducing a unified currency, the euro, which brought European countries closer together. The European Union as a whole is the wealthiest economy in the world, topping the US by more than US$1.0 billion in 2014. In 2008, the Global Financial Crisis caused a significant decline in the GDP of many European economies. Even at the peak of the great economic slowdown, Europe remained the world’s wealthiest region, topping America’s GDP by a staggering US$2.0 billion. In fact, in 2009, Europe was one of the few regions where wealth surpassed its previous year-end-peak. Although Europe wasn’t as effected by the Global Financial Crisis as other global regions, it triggered a far broader problem in Europe, the Eurozone debt crisis. The Eurozone debt crisis hit the European Union hard, threatening the collapse of southern Europe—predominately Italy, Portugal, Spain, Greece and Ireland. The larger economies, mostly Central and East European economies, escaped the worst of the debt crisis.

The European debt crisis is a multi-year crisis that is still affecting countries in Europe. Although by the mid 2010s Europe as a whole had become more stable, several countries (Greece, Portugal, Ireland, Spain, and Cyprus) were unable to repay or refinance their government debt and had to be bailed out by international organizations that came together to form ‘The Troika’. As of 2014, Greece and Cyprus both managed to partially regain market access, and it is expected that their bailout program would end in March of 2016. In fact, after years of constant headlines about the debt crisis, bailouts, unemployment and deflation, it appears that the European economy is on the upswing. Naturally, there are still issues in the European Union, including the conflict in Ukraine, and Greece’s precarious position with the euro, but there are many reasons to cheer Europe’s economy when looking ahead.

The European Central Bank (ECB) recently upgraded its forecast for European growth in 2015 to 1.5%, a significant increase over last year’s measly expansion of 0.9%. ECB President, Mario Draghi, stated, “We expect the economic recovery to broaden and strengthen gradually.” The first half of 2015 has appeared successful, as the weak euro is giving exporters an edge, cheap oil is helping consumers, and the ECB’s bond buying program is having an impact. Europe’s unemployment is falling and deflation risk is fading giving hope to the future of European economies. In fact, the once heavily-in-debt Ireland logged the fastest growth rate of all the European economies in 2014. Recent data from the national statistics office reveal that both domestic demand and exports are strong and have contributed to the surge in the Irish economy. Although Europe as a whole isn’t free of speculation quite yet, it remains the top regional market in the world and will likely continue that way.

NUTRITIONAL PRODUCT MARKET

Europeans are showing increased interest in leading healthy lifestyles, driving the purchases of nutrition products. In fact, Europe is the second-largest market for dietary supplement products in the world. Although Western Europe is the largest market for dietary supplements in Europe, Eastern Europe is considered to have higher future growth potential with growth projected to increase from EU€2 billion in 2013 to EU€3.2 billion in 2018.

In contrast, Western Europe is only projected to move from EU€5 billion in 2013 to EU€5.65 billion in 2018. The nutritional products market in Europe is primarily driven by the rise of the aging population, the growth of healthcare costs, and the increase in lifestyle-related diseases.

Russia, followed by Poland, is the leading nutritional product market in Eastern Europe. Despite Russia’s political unrest, their nutrition supplement market is booming. The market had jumped from EU€550 million in 2008 to EU€1.6 billion in 2013, and is expected to nearly double in value to EU€2.0 billion in 2018. This gives Russia about two thirds of the entire eastern European market, making it the second biggest market in all of Europe. Insufficient amounts of vitamins B, C, D, iron, calcium, selenium, and iodine in most regions of Russia create a stable demand for vitamins and dietary supplements. A staggering two-thirds of the overall population does not get enough vitamins and minerals in their food, creating a necessity for supplementation. Russian’s increased awareness of the importance of taking vitamins and dietary supplements on a regular basis will continue to support the nutritional product market in the country.

The 2013 evaluation by Euromonitor International ranked Italy as the biggest nutritional products market in Europe at EU€1.2 billion, followed by Russia (EU€1.16 billion); Germany (EU€935 million); France (EU€611 million); United Kingdom (EU€538 million); Poland (EU€393 million); Norway (EU€273 million); Sweden (EU€220 million); and Finland (EU€209 million). Eastern European countries—such as Poland, Turkey, the Ukraine, Romania, and Belarus—are reporting robust growth, which can be attributed to the recent economic growth seen in the region. Whereas some mature markets, such as Germany and Denmark, are either flat-lining or showing modest declines.

Western European countries eat a more balanced diet; therefore, these nations are starting to rely less on nutritional products for their nutrients. In the early 2010s, the market for nutritional products was not highly-regulated and heterogeneous between European countries. In order to restore the trust of consumers, the European Union took steps to harmonize the regulation of nutritional supplements, health foods, and herbal supplements by forming the European Food Safety Authority (EFSA). More than a year after the new regulations were set in place by the EFSA, marketers feared the worst for sales of nutritional products. Although there was some confusion and delays associated with the new settlements, the general impact for consumers was rather favorable, regaining trust in dietary supplements. Mainstream manufacturers have had the easiest time conforming to the new regulations, but small and medium players find the new claims quite restrictive.

Europe will likely remain a top regional player in the nutritional product market. Future growth in the market will likely be attributed to the rising age of the population and the resultant cases of bone-health issues, high healthcare costs, increase in chronic diseases, and increased focus on health.

Beauty Products Market

Europeans take beauty and personal care very seriously, as they have the leading regional beauty products market in the world. Within the European cosmetics and personal care market, Germany had the greatest market volume in 2014. According to national statistics, Germany’s beauty products market was valued a staggering EU€13 billion in 2014—followed by France and the United Kingdom at EU€10.6 and EU€10.4 billion, respectively.

Turkey is one of the fastest growing beauty products markets in Europe. Classified as Western Europe, Turkey’s growing economy can sometimes be overlooked, but unlike its neighbor Greece, Turkey’s economy is very much on the rise. Even the Central European beauty products market is experiencing recent growth, with an average growth rate between 2 and 3%.

The beauty products market’s ability to innovate allows it to remain vibrant and competitive as well as a major contributor to healthy economies. Products with multiple, innovative claims were shown to feature strongly in the European beauty products market. Products with multiple functions are convenient and cost-effective and have been taking over the European market. Multi-functional products that include any combination of: whitening, sun protection, colors, moisturizing, or age protection. Although American consumers state that they use 10 or more beauty products daily, Europeans only use five to seven. Value and function remain a top priority for Europeans.

Even though most western European countries face the challenge of very mature beauty product markets, Germany, France, and the United Kingdom continued to register positive value growth within these mature markets in 2014. Companies that continually strive for product innovation and the increasing differentiation and segmentation of products have seen the steadiest growth in recent years. Micro-segmentation is a great tool used to generate demand and drive sales in a mature market. Simply targeting men, women, or girls is no longer enough to generate sufficient consumer interest, forcing manufacturers to target very specific age groups, skin types, and cultures.

Premium personal care and beauty out-performed the mass segment in many Western European countries in 2014, specifically the United Kingdom. Specific categories in which premium products thrived included color cosmetics, skin care, and fragrances. Consumers are willing to spend more on these products because they are often seen as a luxury rather than daily essentials. In fact, fragrances were the number one performing beauty products category in the United Kingdom in 2014. Premium brands have become more accessible to consumers through online shopping sites, such as Net-a-porter and Lookfantastic.com, taking business away from upscale market department stores and salons. Promoting new brands and products via social media has become very successful in Europe over the past few years. Young women have the desire to look better and are more willing to try new colors and products that will help them stand out.

Organic and natural products with economically friendly packaging are becoming more popular internationally, and the trend is also represented in Europe. Data from researchers at Grand View Research suggests that the market for organic personal care products should increase from approximately US$8.2 billion in 2013 to a staggering US$16.0 billion in 2020, reflecting 10% annual growth rates across Europe. The European organic beauty products market is dominated by Germany and France, which accounts for 30% or the total CAGR. Products gaining popularity are those that focus on exfoliation, antioxidant properties, and those featuring herbal extracts. Nordic consumers are also taking natural and organic beauty seriously, as the Nordic market for natural cosmetics is showing healthy growth—with sales doubling between 2007 and 2014, according to Organic Monitor. Denmark has the largest market for natural cosmetics in the Nordic region, which is not as surprising, as the Danish also have the highest market share (7%) for organic foods in the world.

Not all European countries are experiencing growth in the recent years. The ongoing recession in countries, such as Greece and Spain, has had deleterious effects on disposable incomes, making consumers pare down on beauty expenses. On the plus side, stabilization trends are emerging in sales, as it appears that the beauty products market has reached its minimum point after years of free-fall. Consumers in these countries may be shifting from premium to mass products, but they are still buying beauty products. Overall, the beauty products market managed to perform better than other consumer markets in 2014. Consumers are willing to spend more on essential products, such as sun protection, oral care, hair care, and bath and shower, which consumers can trade down but not discard altogether.

Because Europeans are some of the heaviest spenders on beauty products internationally, it can be expected that growth will continue to be positive in the forecast. Consumers will continue to seek products with new formulas, styles, packaging, and ingredients that can enhance their personal care routines daily as well as on special occasions.

Food & Beverage Market

A majority of Europeans understand the importance of positive nutrition. According to a 2014 Datamonitor Consumer Survey, presented by Vitafoods Europe’s Mark Whalley, 56% of Europeans are using food and drink to improve health, and women (60%) are bigger believers than men (51%). The survey also suggests that 19% of Europeans consume functional food and drink products a few times a week. The future of European’s functional foods and drink market appears to be heading into a more natural, protein, and nutritionally dense content direction.

Due to the maturity of the European market, predominately in Western Europe, growth expectations from 2014-2019 are not projected to gain much in size. It, therefore, will be beneficial for functional foods and drink marketers and companies to focus on specific trends within the region before entering into the market.

After general wellness, weight management is the largest platform for functional food and drink sales in both Eastern and Western Europe—with value sale amounting to US$57.1 billion in 2014, according to Euromonitor International statistics. The highest trends in weight management products involve protein and nutrient dense products. The high protein trend is likely going to have a pronounced impact in the European marketplace, as protein is believed to moderate cravings and maintain lean muscle tissue. The trend, which began in the US, is becoming extremely popular in Europe. Functional foods and drink products that include high levels of protein are projected to be a major hit in the forecast. Products that are carbohydrate based, or have an abundance of carbohydrates are not doing well. Instead, consumers are attracted to products with “supergrains,” such as quinoa, oats, flack seed, teff, and buckwheat in the ingredients. Snack foods, breakfast cereals, and bakery products that remain innovative, incorporating supergrains and protein, will likely remain popular to European consumers.

Other popular products in Europe are ones that focus on enhancing beauty from within. Although that can sound quite preposterous, these products will prove to be the most dynamic over the 2014-2019 forecast in both Eastern and Western Europe. In terms of value growth, products positioned as enhancing beauty from within are projected to grow 58% in Eastern Europe and 30% in Western Europe in the next five years. Functional foods and beverages that incorporate collagen, the body’s top structural protein, will likely exert significant more traction than it has in the previous years. Of course, the consumption of vegetables and fruits are linked to health and beauty, and consumers are attracted to functional foods and beverages that incorporate these ingredients.

Functional beverages are hot in the European market. According to Euromonitor International statistics, over half of the total vitamins and minerals in Europe in 2012 were consumed through functional beverages. Sparkling waters fortified with vitamins and minerals are one of the most popular beverages bought by consumers. Functional products that are “better for you” are also becoming increasingly popular all throughout Europe. Value-friendly products that are natural, yet gluten-free, sugar-free, lactose-free, or fat-free are represented heavily in the new, 2015 product launches.

Even though the functional foods and drink market is relatively mature in Europe, there is an absolute wealth of opportunity for new distributors and innovative products. Nearly three-quarters of European consumers state that they are not loyal to specific brands. In 2014, the top five players in the European functional foods and drink products market held only 15% of total value sales. Private label is increasing its share, and in 2014, it accounted for 20% of the total market sales (23% in functional foods and 17% in functional beverages). Distribution from supermarkets is losing share to the penetration of private label, predominately due to Internet retailing. A growing number of manufacturers are successfully developing their own Internet distribution channels, in addition to selling to third-party distributors.